Orica probably not going anywhere because they don't have much of a choice. And i would think it is a very good deal for them if STX get commercial flows.
BlueScope warns of US and Australia energy costs divide
by Simon Evans
BlueScope Steel chief executive Paul O'Malley says the energy costs of his booming North Star steel operations in the United States are five to 10 times lower than the firm pays in Australia as he warned of a potential energy catastrophe right across Australian industry.
US president Donald Trump was intent on making US industry even more competitive through a range of policies, and Mr O'Malley said the contrast between the USA and Australia couldn't be more stark when it comes to the future direction of electricity costs over the next few years.
"They have low and reducing energy costs," Mr O'Malley told reporters on Monday, referring to the situation in the US. He was speaking after BlueScope delivered an impressive 79 per cent rise in bottomline net profit after tax to $359.1 million for the first half of 2016-17.
Mr O'Malley said businesses across Australia were facing serious problems after a decade of talking and posturing by policy-makers which hadn't achieved any certainty when it came to energy policy.
"We do need a certain amount of baseload energy that can be relied upon at all times," he said. "We also need a baseload energy target in my view."
Mr O'Malley said he was frustrated at the inability of the Australian industry to contract for gas, when much of the country's gas was now being "hoovered up and shipped overseas".
"The biggest issue is the ability to contract for gas. Gas is very tightly held in this country," he said, adding that with baseload coal-fired operations being withdrawn from the market, they needed to be replaced by gas.
"If we do not have coal, then we must have gas," he said. But he pointed out that gas reservation policies were anathema in Australia. "Reservation in Australia is a dirty word".
Mr O'Malley said there had been very little focus on the severe energy imposts facing industry over the next few years, as energy costs threatened to escalate to $150 to $300 per megawatt hour for some players.
"The hip pocket cost to industry large and small and to consumers is going to be substantial," he said. But he added that the over-arching review by Professor Alan Finkel into the electricity network did represents one of the best opportunities he'd seen in the past 10 years to put Australia on the right path.
If the serious issues weren't addressed, then the Australian industry could face an "energy catastrophe". BlueScope derives around two thirds of its profits from overseas.
BlueScope, which also announced on Monday a $150 million share buyback, lifted its interim dividend to a fully-franked 4¢ per share, up from 3¢ previously. It will pay the first-half dividend on March 30.
The largest contributor to the jump in profits were the booming North Star operations based in Ohio in the United States, where BlueScope fortuitously moved to full ownership in late 2015 by exercising its right to acquire the remaining 50 per cent it didn't already own, just as as strict anti-dumping measures and improvements in the US steel market kicked in.
It moved to 100 per cent ownership at the end of October, 2015, so gained had a full six-month benefit in the December half of 2016 compared with a two-month contribution in the previous corresponding half.
The North Star BlueScope Steel division lifted underlying earnings more than fourfold to $242.5 million from $42.4 million for the first half. Mr O'Malley said energy costs at the Ohio mill were generally $35 per megawatt hour, and in Australia they were five to 10 times higher.
The Australian steel products business increased its underlying earnings by 40 per cent to $242.5 million for the first half, with particularly strong demand in the residential construction sector in NSW and Victoria. Mr O'Malley predicted that the residential construction market would stay solid for the next few years. He also said the Western Australian market appeared to have bottomed.
Mr O'Malley said robust house price growth and low interest rates meant that the renovations market had also grown solidly in Australia. House prices in Sydney and Melbourne have been soaring, with growth in other state capitals more subdued.
He said BlueScope wasn't part of the final stage of the Arrium Australia sale process. "At this stage we're not participating in that process," he said.
(20min delay)